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Sometimes you need an entity for your business idea that is a perfect fit. S corporations (S corps) are great if a traditional C corporation is too clunky and a partnership is too informal. Usually, S corps fill a need for small business entrepreneurs who want the ability to raise capital but simultaneously reduce the tax footprint of the business.
So, what is an S corp? Essentially, S corporations are a federal tax election under the Internal Revenue Service (IRS) and not a formal standalone entity like a C corporation or limited liability company (LLC). Through its tax election with the IRS, it’s not taxed at the corporate level, but rather has pass-through taxation for its shareholders. This means that they pay income tax on the company’s income. We’ll go into further detail below.
Below we’ll discuss the benefits of an S corp and the steps to form one. But to get started, the first thing you need to know about starting one in Oregon is how to start a business in general. We make that part straightforward with our Oregon LLC Formation Service and our Oregon Corporation Formation Service.
That’s the first step to getting your Oregon S corporation up and running. Going forward, we offer your business continuing support with our business development and maintenance services.
When choosing a business name keep in mind that this choice will last for the life of your business. You’ll also have to follow Oregon rules for naming your business. We can help with that if you choose to use our name reservation service.
State law require S corporations to have a registered agent. This agent receives official papers on behalf of your business such as service of process. If you’re in Oregon and need a registered agent, we can help.
You then need a set of managers to run your Oregon S Corp. You can appoint initial directors (C Corp) or managers (LLC) for your business through a written company resolution. Initial company resolutions can come from the founders of the company.
Next, you’ll need to file Articles of Incorporation for your C corp or Articles of Organization for your LLC with the SOS. These are the documents that officially give birth to your enterprise as they register your company with the state.
As we mentioned above, an S Corp is simply an IRS tax election. However, filing File Form 2553 with the IRS is arguably the most important formation step. Form 2553 makes your C Corp or LLC into an Oregon S Corporation.
Also, if you have an LLC as your foundational entity, you first need to make a tax election with the IRS and the Oregon Department of Revenue to treat it as a corporation. After that step, an LLC can file Form 2553 to elect S Corp treatment.
S Corps confer significant tax benefits to its shareholders. However, to access those benefits, the IRS requires very specific qualifying requirements. The IRS states that an S Corp must:
If the above seems too restrictive for your business plans (e.g., you plan on raising lots of capital through stock sales, etc.), then an S corp may not be the right small business entity for you. To make sure we urge you to consult with your legal and financial professionals about the S Corp business option.
Operating an Oregon S corporation can be beneficial in many ways, such as:
If tax liability is one of your biggest concerns, then this designation might be the right selection for you.
Of course, there can also be drawbacks to S corporations, such as:
Once again, we encourage you to speak to a tax or legal professional to determine if these factors are significant given your circumstances.
S corps are small business vehicles that fit a very narrow niche. Therefore, one of the first things you should know about starting an S corp in Oregon is that it’s a C corp or LLC by default until you file the right documents to qualify it as an S corp. That said, we get into more of the specifics about S corps below.
At its most fundamental level, S corporations are simply small business entities where the Internal Revenue Service places restrictions on their shares and shareholders in exchange for pass-through taxation benefits.
C corps can issue more shares and classes of stock than S corporations. But, for many people, the biggest difference and the biggest draw is how S corps normally pay income tax.
You have probably heard that C corporations pay double income tax. It’s a double tax because the C corp pays business income tax first, and then all the shareholders have to pay personal income tax from the corporate distributions.
On the other hand, S corps exist largely for their pass-through taxation benefits. Pass-through taxation means that the S corp doesn’t pay taxes on its corporate income; only the shareholders pay a personal income tax on their share of the S corp income. For more information on income tax and S corps, or just business income tax in general for corporations, reach out to a professional.
When considering how to form S corporations in Oregon, the first step is to create a foundational entity such as a C corp or LLC. After that, you need to think about S corp filing requirements. You’ll need to file Form 2553 with the Internal Revenue Service to overlay the S corp on top of the foundational entity (i.e., C Corp or LLC).
Yes, they can. An Oregon LLC can elect to be an S corp. The main reason why an LLC would elect an S corp designation is to reduce some of the tax liabilities, especially those dealing with employment taxes. We dig deeper into LLCs and taxation on our Tax Information for Limited Liability Companies page.
If you want to know more about S corp instructions or to convert your LLC or C corp into this business format, then our S corp Service can do it quickly and accurately. Also, let us help you with the compliance needs of your enterprise. Our services include helping you create your own business plan, and are designed to let you focus on growth and making money.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
The tax rate is the major advantage of forming an S corp in Oregon. It takes advantage of the limited liability of a C corp while also creating the benefit of pass-through taxation.
Generally, a corporate name should be professional and something you can live with for the life of the business. But take care to follow any state naming requirements.
You don’t need to identify your LLC as an S Corp in the company name. Provided that you are following the Oregon name restrictions regarding the use of “LLC” or “limited liability company,” you shouldn’t need to make any further disclosures.
There’s no Oregon S corporation tax rate. Rather, taxes are paid with your personal income taxes.
Review the specific requirements with both the IRS and the Oregon Department of Revenue to make sure you comply.